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Mittal comes under fire

Oct 09 2016 06:30
Dewald Van Rensburg

Economists this week questioned government’s decision to give ArcelorMittal SA tariff protection against foreign competitors after more than a decade of attempts to prosecute the steel giant for abusing its monopoly position.

Stellenbosch University professor of economics, Nicola Theron, said the tariffs seemed to disconnect competition policy from industrial policy.

“ArcelorMittal was described as a superdominant firm by the Competition Commission ... it was accused of abuse of dominance. More recently, it was able to successfully lobby government for protection and that led to the 10% tariff,” said Theron at the 10th annual Competition Conference in Cape Town this week.

“Remember that the excessive pricing was based on pricing just below the import parity price. Now, because of these tariffs, we obviously see that import parity increase, which gives them the opportunity to increase that price.

“We had a very successful competition policy. The problem is that if you don’t have cooperation between trade and competition authorities, you might erode some of the gains you have made,” she said.

Liberty Mncube, chief economist at the Competition Commission, also questioned the way industrial policies, and specifically protection of industries, can undermine competition policy.

“There is a desire from some to adopt protectionist policies. The steel industry is one example. The solution for me is not to limit trade,” he said.

However, Economic Development Minister Ebrahim Patel praised the compromise reached, even as he criticised ArcelorMittal as a “predator”.

“ArcelorMittal is a large, multinational corporation whose behaviour locally suggests, I dare say, that predation is hardwired into its DNA,” he said.

Recurring competition complaints and investigations against the formerly state-owned steel monopoly, which started in 2003, culminated in a breakthrough deal this year where ArcelorMittal was ordered to pay a R1.5 billion fine and subject itself to a semi-regulated pricing system.

ArcelorMittal agreed to invest R4.6 billion in modernising its steelworks and its pricing was capped within a maximum 10% profit margin.

Patel said that the “deep pockets of the litigant” are among the reasons it was hard to successfully prosecute ArcelorMittal for abuse of its dominance.

“Yet, this predator recently found itself in a rather unusual position where it was facing injury from forces beyond its control,” he said of the global steel glut caused by Chinese overproduction.

“The company realised it needed the support of government to weather the storm. Government recognised the need to carefully manage the competing claims between the company and downstream producers to enable South Africa to have a primary steel industry standing at the end of the great shake-up in markets that will conclude the current period of overproduction,” said Patel.

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